The Inability of Bitcoin to Serve for Rational Economic Calculation

Revised: December 17, 2014

The views and opinions in this article written by Chris LeRoux with significant contributions by Tal Salsa do not represent the views and opinions of other people that write on

Origin of money as most saleable good and rational unit of account

Carl Menger explained that in barter some commodities are more commonly demanded than others, more saleable. Some inevitably notice that by first trading their property for a more marketable commodity, they can more frequently overcome double coincidence of wants. Those who witness this have a natural incentive to imitate. Thus the market tendency is toward the more marketable good being spontaneously adopted as a medium of exchange (Menger 1892, 22) and toward market-wide adoption of the most saleable commodity, money. Ludwig von Mises explained:

Whenever a direct exchange seemed out of the question, each of the parties to a transaction would naturally endeavour to exchange his superfluous commodities, not merely for more marketable commodities in general, but for the most marketable commodities; and among these again he would naturally prefer whichever particular commodity was the most marketable of all. The greater the marketability of the goods first acquired in indirect exchange, the greater would be the prospect of being able to reach the ultimate objective without further manœuvring. Thus there would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money [emphasis mine] (1912, 31).

Due to the tendency for one commodity to be adopted as a medium of exchange, all goods tend to be priced in that medium, which then serves as a “common denominator” and a “price index”, perhaps expressed in ounces, pounds, kilograms, liters, etc (Mises 1940, 427). Mises explained, “[O]bjective exchange-value is expressed in terms of money. . .” This generally accepted good and generally used unit of account enables rational economic calculation. Thus money prices do not reflect ordinal-only subjective preferences of only a few market participants but rather transmit objective information regarding supply and demand representative of the entire market (Menger 1892, 30 and Mises 1922, 102-103).

While there are no exceptions to the regression theorem, governments have been able to forcibly substitute fiat currency for commodity money via legalized aggression, coercion, and fraud. But the fiat currency could not exist without the pre-existing price structure devolved from commodity money. Mises explained, “This link with a preexisting exchange value is necessary not only for commodity money, but equally for credit money and fiat money. No fiat money could ever come into existence if it did not satisfy this condition” (1912, 99). And Joseph T. Salerno elaborates, “One important implication of Rothbard’s theorem for monetary reform is that there is no possibility of replacing a government monopolized fiat money with schemes for competing private inconvertible paper currencies. The reason is that the established fiat money, barring a hyperinflationary crackup, retains an indissoluble evolutionary link with the original commodity money by virtue of its position as the universally employed unit of price appraisement” (2010, 59).

Bitcoin and the Regression Theorem

Jeffrey Tucker concedes, “Users played around with the results for fully 8 months before . . . (Bitcoin) obtained its first market value. . . It was released not as a traditionally capitalist product but rather on a free forum. . . In fact, if there were no payment network . . . the currency itself would have no value at all” (2014, March 25). Detlev Schlichter claims, “But equally it is commodity money because it is based on a cryptographic algorithm, which requires time and considerable computing energy to create Bitcoins and which is designed so that the overall supply of Bitcoin is strictly limited” (2012, March 19). And Peter Šurda says, “According to my opinion, the rational expectations of the potential utility of Bitcoin for the potential buyers exceeded the price demanded by the producers, and trade emerged” (2012).

However, prior to its first use in exchange, neither the payment network, cryptographic algorithm, related computer time, nor expectations of potential buyers had “purchasing power in the immediate past“, a “previously existing array of prices“, “previously existing purchasing power“, or a “stable demand and price before it began to be used as a medium of exchange“, as the regression theorem demands:

[N]o good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments. . . Neither a buyer nor a seller could judge the value of a monetary unit if he had no information about its exchange value—its purchasing power in the immediate past. . . (Mises 1940, 427).

Demand for a good as a medium of exchange must be predicated on a previously existing array of prices in terms of other goods. . . Money must develop out of a com­modity with a previously existing purchasing power. . .” (Rothbard 1970, 222 – 223).

Hayek and his followers have failed completely to absorb the lesson of Ludwig von Mises’ “regression theorem,”. . . [T]o become used as money, it must have originated as a commodity valued for some nonmonetary purpose, so that it had a stable demand and price before it began to be used as a medium of exchange (Rothbard 1985, 19-21).

Robert Murphy attempts to avoid the issue saying, “There is no question that people today have a way of estimating the purchasing power of Bitcoin; they can look up the spot price online” (2014, March 10). However, the spot price is clearly not independent of fiat currency price structures. Murphy then rejects the Mengerian, Misesian, Rothbardian theory of money outright saying, “In conclusion, Ludwig von Mises’ regression theorem has nothing to say about the empirical question of whether Bitcoin will move beyond a medium of exchange and become a true money.” Likewise, Tucker says, “Understanding Bitcoin requires that we understand the limits of our ability to imagine the future that the market can create for us” (2013, April 2). But, as we covered above, there are no exceptions to the regression theorem and it is a priori, not empirical or historical. Mises and Rothbard were very clear:

Finally it was objected to the regression theorem that its approach is historical, not theoretical. This objection is no less mistaken. . . It does not say: This happened at that time and at that place. It says: This always happens when the conditions appear. . . (Mises 1940, 427).

One of the important achievements of the regression theory is its establishment of the fact that money must arise in the manner described (Rothbard 1970, 222].


Bitcoin did not have “previously existing purchasing power/pricesbefore being used in exchange, as explained necessary by Mises and Rothbard above, and thus Bitcoin does not have price ratios to the majority of market goods as required for rational economic calculation. Instead Bitcoin relies on the fiat currency price structures. Konrad S. Graf says, “Those who pay in Bitcoin today overwhelmingly pay prices that are listed in the local fiat currencies” (2013, September 14). Frank Shostak reiterates, “Bitcoin can function only as long as individuals know that they can convert it into fiat” (2013, April 17). And Nikolay Gertchev summarizes, “[S]ellers still price their goods in dollars, euros, etc. The price is then converted into bitcoins. . . at the final stage of . . . the transaction” (2013, April 4). And Graf concludes, “Even Bitmit, a dedicated bitcoin-denominated auction site, automatically and helpfully translates all bitcoin prices into the local fiat currency” (2013, February 27).

The problem of economic calculation is omnipresent because scarcity is omnipresent, and until the fantasy of super-abundance arrives, individuals will benefit from rational economic calculation in determining the most efficient means to achieve desired ends. Without the price ratios devolved from commodity money, Bitcoin has nothing upon which to anchor rational economic calculation. As Gary North says, “The problem for the defender of Bitcoins is this: we need a comprehensive system of prices. . . they must be autonomous from the fiat money pricing system. . . the division of labor must be integrated by a single currency system” (2013, December 6).

The more saleable a commodity, the more rational the unit of account, as being more widely distributed makes it more representative of overall supply and demand. With a less saleable medium, there will be greater calculation error and more wasted resources, ceteris paribus. The most rational unit of account possible is one used globally, by everyone. Thus it is in the interest of every individual to adopt the most marketable good to most efficiently overcome the double-coincidence of wants, integrate division of labor, and increase the rationality of economic calculation.

North summarizes, “But the programmers think they can reverse the regression theorem” (2013, December 6) and Tucker despairs, “After one full day of buying, selling, and using Bitcoins, I had the strange experience of resenting that I had to pay a cab fare in plain old U.S. dollars” (2013, April 2). Asking consumers to adopt a less saleable medium is generally asking them to sacrifice their interests and an uphill battle reminiscent of Sisyphus. The tendency of the majority to adopt the most saleable good as a medium of exchange cannot be reversed short of legalized aggression, coercion, and fraud. Thus Bitcoin cannot ever become money, cannot separate money from the state, and cannot end the state as many have suggested like Michael Suede, Peter Šurda, and Stefan Molyneux (2011, July 1; 2013, March 6; 2014, April 25). Rothbard explains:

Even the removal of the legal tender privilege would not work, for the new names would not have emerged out of useful commodities on the free market, as the regression theorem demonstrates they must. And since the government’s own currency, the dollar and the like, would continue to reign unchallenged as money, money would not have been denationalized at all. Money would still be nationalized and a creature of the state. . . (1985, 19-21).

Bitcoin is a further atomization of the international monetary system begun with government destruction of the international gold coin standard and failure to enforce 100% gold reserves. Since it is a mere symptom of this atomization, all the capital sunk in Bitcoin is malinvestment. If “Satoshi Nakamoto” could design a global monetary system, then the Federal Reserve could solve all economic problems by hiring him. However, an honest, sound, global, monetary system cannot be designed and constructed but is, rather, spontaneous.

As Jesús Huerta de Soto writes in a personal email, “The possibilities the bitcoin becomes money are null and Mises’ regression theorem explains why: money is an evolutionary, organically formed institution that cannot be created ex novo” (2014, January 15). Murphy likewise says, “[T]he use of money is a very complex and useful practice, even though it was not consciously planned by an expert or even a group of experts” (2010). Salerno properly derides the efforts to plan a monetary system as “monetary constructivism” which “contrasts with the Mengerian or Austrian conception of money as an undesigned social institution that emerged spontaneously from free market economic processes. . .” (1985). And North concludes, “The defenders of Bitcoins must deny the Menger-Mises regression theorem. They must affirm what Hayek called constructivist rationalism: the imposition of a man-made plan to create a new social order” (2013, December 3).

Many Bitcoin supporters scoff at the regression theorem and the problem of rational economic calculation (Rothbard, 1991). But Mises chided:

If the socialists attempt to belittle the significance of the problem of economic calculation. . . they simply show that they do not understand the real nature of the problem. . . there still remains the problem of ascertaining how the existing means of production can be used most effectively to produce these goods in question. In order to solve this problem it is necessary that there should be economic calculation. And economic calculation can only take place by means of money prices established in the market for production goods in a society resting on private property in the means of production. That is to say, there must exist money prices of land, raw materials, semimanufactures; that is to say, there must be money wages and interest rates” [emphasis mine] (Mises 1922, 125).

As the USSR attempted to set prices for capital and producer goods that were not privately owned, the Bitcoin supporters hope to establish a global unit of account despite owning a tiny fraction of global capital. And just as the USSR fell to the regression theorem, so will Bitcoin.


Gertchev, Nikolay. (2013, April 4). “The Money-ness of Bitcoins.” Mises Daily. Available online:

Graf, Konrad S. (2013, September 14). “Bitcoin as medium of exchange now and unit of account later: The inverse of Koning’s medieval coins.” Available online:

Graf, Konrad S. (2013, February 27). “IN-DEPTH | Bitcoins, the regression theorem, and that curious but unthreatening empirical world.” Available online:

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Salerno, Joseph T. [1985] 2013. “Gold and the International Monetary System: The Contribution of Michael A. Heilperin.” In Llewellyn H. Rockwell Jr., ed., The Gold Standard: Perspectives in the Austrian School. Auburn, AL: Ludwig von Mises Institute, pp. 97-127. Available online:

Schlichter, Detlev. (2012, March 19). “What gives money value, and is fractional-reserve banking fraud?” Available online:

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Suede, Michael. (2011, July 1). “Could The State Exist If Property Rights Were Impossible To Violate?” Libertarian News. Available online:

Šurda, Peter. (2012) “Economics of Bitcoin: is Bitcoin an alternative to fiat currencies and gold?: Master’s Thesis.” WU Vienna University of Economics and Business. Available online:

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Tucker, Jeffrey A. (2014, March 25). “The Austrian Influences on Bitcoin: There is a bit of Menger, Mises, Hayek, Rothbard, and Kirzner in every Satoshi.” The Freeman: Foundation for Economic Education. Available online:

Tucker, Jeffrey A. (2013, April 2). “Bitcoin for Beginners.” The Freeman: Foundation for Economic Education. Available online:­­­­­­eeman/detail/bitcoin-for-beginners


The Inability of Bitcoin to Serve for Rational Economic Calculation

The Inability of Bitcoin to Serve for Rational Economic Calculation


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4 Responses to The Inability of Bitcoin to Serve for Rational Economic Calculation

  1. Kristoffer Walker June 13, 2014 at 5:11 pm #

    Thank you for this wonderful piece of writing! You nailed the key concepts. Most excellent!

  2. Mckenzie September 16, 2014 at 12:50 am #

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  3. John November 2, 2016 at 7:27 pm #

    Excellent read, thank you.


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